Well-intentioned laws, courts cripple growth

A key reason why India’s economic growth has halved from 9% to 4.5% per year is that, in search of inclusive growth, the courts and legislatures have increasingly made legitimate business difficult. It now takes 12 years to open a new coal mine. This is not inclusive growth but paralysis and stagnation.

The new land acquisition law aims at quick, fair acquisition . But the secretary of the department of industrial policy and production says the Act has made it “virtually impossible” to acquire land for roads, ports or other infrastructure. Higher compensation provided in the new law is welcome, but it also mandates a social impact assessment for each project, followed by expert group clearance, followed by an 80% vote of affected persons. Legal challenges are possible at each stage. Instead of quick, fair acquisition, we have dither and delay.

India has become a major global player in clinical trials for new drugs. But complaints have arisen against malpractices by some companies — not informing patients of the risks, not giving insurance cover or compensation, negligence leading to deaths. The obvious answer is to prosecute and jail the guilty, deterring further misdeeds.

But in India the courts take forever to conclude cases, so misdeeds are not deterred. Instead of focusing on quick justice, the Supreme Court has decreed lengthy new procedures for clinical trials, causing huge delays and costs for legitimate activity.

The Serum Institute of India, a top global vaccines producer , has suffered delays of over a year in clearance for Phase 3 trials of a rotavirus vaccine. So, it is shifting clinical trials to other Asian countries for this, and for a dengue vaccine too.

Lupin Pharmaceuticals, a top drug company, has a research park in Pune. But delays in clearances have forced it to shift clinical trials to Europe and Japan, despite much higher costs there. If Lupin’s procedures are good enough for Europe and Japan, they should be good enough for India. But our courts are under the illusion that good practices are created by a jungle of rules. Sorry, they are actually created by swift punishment that deters the guilty. That’s why clinical trials suffer from fewer malpractices in Europe or Japan.

The Supreme Court should focus on speedy convictions, not ever more regulations.

Despite having the world’s third biggest reserves of iron ore and coal, India has begun importing both. The courts have banned iron mining in some states, and court inquiries into corrupt coal block allocations have frozen fresh mining. Now, illegal mining surely should be stopped. But the right way is to nail the guilty, not stop all legitimate activity. No illegal miners have been convicted beyond appeals, but many legitimate miners have suffered huge losses.

Illegal sand mining is rampant. Sand is essential for making concrete for construction. But the courts have passed increasingly stringent rules, curbing mining from river beds on environmental grounds. This has created a huge shortage of sand, which in some states sells at Rs 1,800/tonne, more than the price of coal some years ago. Cowed by court strictures and threats of prosecution, many Collectors are playing safe by simply not issuing new sand licences or renewing old ones that expire. Faced with public outrage over illegal mining, the Green Tribunal has mandated environmental clearance (and hence delays) for even the smallest patches of sand. Will this check illegal activity? No, but it will reduce legal mining, making India even more dependent on the sand mafia for supplies.

These examples are just the tip of the iceberg. Our courts are not designed for making policy: they are designed to judge whether actions are in accordance with the law. They are not experts in the essentially political function of balancing the needs of production and social protection.

Politicians are accountable to voters for bad policies, like those on land acquisition. But the courts are accountable to nobody for causing administrative paralysis, bankrupting honest companies , or increasing poverty by checking economic growth.

That’s why court activism should be limited to extreme cases where governments are so corrupt that intervention is essential. There’s an old judicial saying that it’s better to let many crooks go free than jail an innocent man. Yet much judicial activism penalizes innocent entrepreneurs and bureaucrats.

Misgovernance in India is not just the result of crooked politicians and businessmen. It is also the result of wellintentioned but badly designed laws. Above all, it is the result of a dysfunctional police-judicial system. Unending legal delays encourage law-breakers in every walk of life. The solution is not policy takeover by the courts, but quick justice.

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One thought on “Well-intentioned laws, courts cripple growth”

With due respect let us not muddle the issue. Court activism is the corresponding reaction and fallout of the extreme malgovernance of Coal and Iron resources by an elite few. Need to fix the malgovernance first so that the activism ends.